Did First Solar Just Walk a Fine Reg FD Line?

First Solar may have violated the SEC's Regulation FD, or fair disclosure rule in discussing a solar project's funding outlook.

(First Solar story updated for clarification of comments from Maxim Group and Collins Stewart analysts) NEW YORK ( TheStreet) -- Shares of U.S. solar company First Solar ( FSLR) slid by 7% on Wednesday, possibly due to the company reportedly hinting to some investors and analysts that one of its three large-scale solar projects would not receive a loan guarantee from the Department of Energy, as first reported on TheStreet on Wednesday.

On Thursday morning, the company made it official, putting out a press release that said its Topaz project, one of the larger U.S. solar projects ever to be planned, would not receive a government loan guarantee, a day after some analysts and investors said First Solar was spreading the word.

Aaron Chew, an analyst at Maxim Group, called the company on Wednesday early in the evening for clarification of reports he was hearing about Topaz. While Chew says they did not outright tell him the Topaz DoE loan guarantee would not go through, they did indicate they now saw a "much lower probability" of it happening which to him suggested it was in all likelihood "a done deal." First Solar also told the Maxim analyst it was in negotiations with a buyer with a low-cost of capital for the project. The next morning, First Solar announced that it would not receive a DOE loan for Topaz, and negotiations with a buyer with a low cost of capital, a specific factor that could make financing attractive even without the federal loan guarantee.

That comment alone to the Maxim Group analyst the night before the press release could very well be a violation of Regulation FD, said Bryn Vaaler, professional services partner at Dorsey & Whitney and Reg FD expert. On Wednesday afternoon, a First Solar spokesman was quoted in a Marketwatch story giving no indication that any of the First Solar projects was out of the running for a loan.

Several analysts and investors have expressed a concern that First Solar is walking a fine line in these comments, as well as frustration, citing the Securities and Exchange Commission's Reg FD, which stipulates that an officer or director of a company cannot make any disclosure of a material nature about its business on a selective basis.

In the end, it may be that First Solar violated the spirit of Reg FD: it may turn out that First Solar realized that it was walking too fine a line, or that there was some other form of unintentional leak and the company issued the Thursday press release as a result. Regulation FD has a safe harbor that says "If the Company learns that it has unintentionally disclosed material nonpublic information, it must publicly disseminate the information within 24 hours."

The large-scale solar project loan that First Solar was discussing with analysts a day before issuing a press release is, in fact, essential to the company's earnings outlook. Any failure to take advantage of a government loan guarantee means that First Solar has to obtain more expensive capital markets debt financing. This would result in a lower sale price to a buyer of the solar project, and in turn, lower earnings for First Solar. The company has made this point itself in previous commentary about the solar project market.

The disclosure related to First Solar's Topaz project is complicated by the fact that the market was rife with concern about all federal loans being offered to energy projects on Wednesday, as the House Energy Committee said it wanted to review each and every loan planned by the Department of Energy in the wake of the bankruptcy of White House-backed solar company Solyndra.

That led to speculation, including here, that First Solar's three federal loan guarantees faced unquantifiable political risk.

First Solar may have thought it was merely responding to market concerns in reaching out to the analyst community a day ahead of issuing a press release about the Topaz project, but others contend that the solar company, the largest in the U.S. and a member of the S&P 500, was attempting to massage bad news by giving advance warning to some selected members of the Wall Street community. There were also reports in the energy trade press that Enbridge might acquire the Topaz project, and Enbridge has a low cost of capital.